Virginia state revenue came in $438.5 million lower than predicted

July 10, 2014|By Travis Fain, tfain@dailypress.com

RICHMOND – State revenues took a steeper dive last year than even pessimistic legislators assumed late last month when they finalized the state budget, putting the prospect of more spending cuts on the horizon.

Revenues for fiscal 2014, which ended June 30, came in about $438.5 million lower than state finance officers initially predicted.

The slump was even worse than state leaders planned for last month, when they re-wrote the budget and sliced about $1.6 billion out of the two-year spending plan that took effect July 1.

The state doesn't have a cash flow problem, and there are no immediate plans for specific cuts in light of the latest news. The state's team of economic advisers gathered Wednesday, and a separate group of experts will meet August 1 – earlier than usual. The governor will announce new revenue estimates August 15.

"That will be when we decide if there needs to be a further round of budget cuts," McAuliffe spokesman Brian Coy said Thursday.

There's no panic over the numbers, but they are disconcerting, House Appropriations Committee Vice Chairman R. Steven Landes said. They're also unprecedented, in some ways. The governor's office said this is the first time the state's annual revenues have declined outside of a national recession.

Lower-than expected revenue from non-withholding taxpayers take most of the blame, though the governor's office said federal budget cuts also depressed regular income taxes and sales tax collections.

State forecasters had hoped to see a small bump in revenues during fiscal 2014, initially calling for a 1 percent increase over the previous year. That's the trend that outgoing Gov. Bob McDonnell used to build his final two-year budget proposal.

Instead, collections dropped 1.6 percent, mostly because of the $401 million overestimation in non-withholding revenues.

Those are income taxes paid by people who are self-employed, or who rely on capital gains from investments for much of their income. These gains were well below expected levels over the last year, apparently because the federal government raised the capital gains tax a couple of years ago, which encouraged people to sell investments and take their gains in 2012.

A surging stock market led state forecasters to expect more gains over the last year, and more taxes. It seems investors kept their money in the market instead, avoiding big gains and the new taxes they would have produced.

The state's revenue drop occurred while the fiscal 2014 budget was in effect, but it will affect the fiscal 2015 and 2016 budgets because those budgets assumed the state would have more money left over from 2014 than it will.

The lower revenue numbers are also likely to lower revenue forecasts, which in turn may mean spending cuts to balance the 2015 and 2016 budgets.